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Mark's Market Blog

6-1-14: All Elon Musk All Week.

By Mark Lawrence

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Stocks resumed their upwards climb after nearly three months of sideways movement and bouncing around in a range. All new record highs have been established - expect that statement most weeks for the next several months. Both Bernanke's and Yellen's Fed think that a stock market bubble is just what our economy needs right now, and they're getting what they want. Many point out that historically bubbles have always burst and lead to pain and heartache, not to mention the frequent appearance of Wall Streeters jumping out of windows, but that's not an interesting issue right now.

S&P 500 December 2 2013 to June 1 2014

How do people feel about the stock market going up? One of the better measures is the VIX, the volatility index sometimes called the fear index. This is at a five year low, and in the last month has dropped decisively below 12 for the first time. The VIX is telling us that the big players aren't seeing a major correction on the nearby horizon. On Wall Street they say the bull market isn't over until the last bear is dead.

Six years ago rampant debt almost brought the system down. Have we learned? Some of us yes, some of us not so much. . . Japan, UK, Europe, China seem to need a refresher course.

10 year treasury note interest is tumbling. This is that short squeeze I predicted a couple weeks ago - people betting on rates going up bet against the Fed, always a mistake. It's very cheap these days to be a debtor government.

Three Fed presidents - Lacker, a hawk; Williams, a centrist; and Evans, a dove - agreed in a press conference that the Fed must continue policies that imply higher inflation in the future, and this is far more important than raising rates to fight bubbles. They said Sweden and Norway raised rates to stop a bubble and wiped out the benefits of a long effort to inflate by their reserve banks. So, as the S&P climbs towards 2200 and beyond and you hear more and more people calling this a bubble, don't be thinking the Fed will act to slow that bubble.

Consumer confidence dropped last month, personal spending fell and the Chicago PMI numbers increased, indicating higher inflation. Years ago in response to inflation ice cream makers dropped their standard container from 1/2 gallon to 1.75 quarts then 1.5 quarts, thinking perhaps that we would not notice. I promise you that every man in the US noticed immediately, and none of us liked it. Now Walmart has changed their standard loaf of bread from 1 pound, the standard for bread loaves for at least a century, to 14 ounces, apparently hoping we would not notice. We did. Perhaps soon we'll be buying gasoline in 3.75 quart units instead of gallons. Or maybe cars will start coming with 3.75 tires, or blue jeans with 1.75 legs. I wonder if anyone will notice that? I'm pretty upset by this - the only things I think I have confidence in to stay their current size are 2-liter cokes, Whoppers, and the Big Gulp. And I expect US waistlines to continue to grow.

Japan has been printing money like mad, hoping to rekindle inflation. The US Fed will be very gratified to hear it's working - Japan's latest inflation number is 3.2%, the highest since 1991 when their crisis started. Unfortunately a lot of that inflation was apparently caused by their recent raising of their sales tax from 5% to 8%. Meaning in a couple months when the dust settles their inflation might revert to it's previous unmovable low number. Also the new sales tax rate seems to be crushing purchasing; initial number indicate Japan is headed for a major recession. Bankers everywhere - both central and commercial - want higher inflation to help steal your savings, and so do deeply indebted governments, but it has proven nearly impossible to get inflation started in the current world economy of billions of poor people happy to work for $150 per month.

Putin is establishing a new economic block, the Eurasian Economic Union. Initial members are Russia, Belarus and Kazakhstan. Putin is challenging the west and trying to re-establish the old Soviet union, this time as an economic block.

We're winning the war against smoking, right? Nah, not even close. In 2009 the world consumed 5.9 trillion cigarettes, 865 for each person alive and nearly twice the number of cigarettes consumed in 1970. In Russia and China the average person smokes 2500 cigarettes per year - that's not the average smoker, that's the average person. All told, cigarettes will cause 1 billion deaths this century. My only regret: those deaths almost always come after reproduction, not before. Perhaps we should mandate cigarettes include birth control chemicals.

A California federal judge ruled that the EPA is legally obligate to legislate reduced ozone levels.Most of the country already passes the proposed 75ppm levels; the exceptional places are most of California, Phoenix, Denver, Houston, Dallas, St.Louis, New Orleans, Chicago, Atlanta, Pittsburgh and the DC-Baltimore-Philadelphia-NYC corridor. Of course these cities account for the vast The EPA estimates that a tougher standard would cost the economy under $90 billion per year, a number I doubt. The American Petroleum Institute claims a more accurate estimate is $1 trillion per year, bringing our economy to a screeching halt; another number I doubt. Will stricter EPA rules kill the economy? An interesting question, soon to be answered. How does it feel to be some Washington bureaucrat's economic crash-test dummy?

Tomorrow Obama is expected to send an executive order to the EPA to all but legislate coal out of existence. No surprise here: he promised on the campaign trail that under him energy would get more expensive. Saudi Arabia has got to be loving this: just as we achieve energy independence we pass rules that require us to buy more foreign oil.

Barclay's says electricity utilities are a poor investment due to solar power. Solar panels are getting quite cheap - the payback where I live in PG&E land is as little as 5 years. The problems with solar have been high prices and storing energy for night time. Those are quickly being solved - panels keep getting cheaper at about 5% per year, and Tesla type batteries can power a house for up to three days for about $4000, compared to $15,000 - $20,000 for conventional lead-acid batteries. Soon the only reason to have a hookup to the grid will be to charge your car. If you live in Seattle solar is still a bit in your future, but if you live in Arizona you should be putting it in this year.

S&P rated Tesla bonds as junk. Tesla is selling $1.6 billion worth of bonds to pay for a new battery factory. Tesla says in public that these batteries may go to houses to store solar power for night time, but Tesla's growth curve indicates they will be using all the batteries they produce.

EVs are dead - or so says Morgan Stanley. Their analysts say that electric vehicle sales have been stupendously disappointing for Ford, Toyota, Nissan, and that the plug is being pulled. Chevy is selling 1500 Volts per month against a production capacity of 5,000. Cadillac has sold 241 ELRs so far this year, the "$76,000 Volt," leaving 1700 languishing on dealer lots looking for a home. Tesla will survive in their estimation because the car is so good, not because it's electric. The Tesla has the highest rating ever from Consumer Reports and is ranked #1 by Car and Driver for low aerodynamic drag. For the rest of us, the foreseeable future still involves gasoline.

Elon Musk, the founder of Paypal and Tesla, has a new company SpaceX which launches rockets, and a new lawsuit where he asserts the Air Force awarded 36 launches to Boeing and Lockheed without a competitive bidding process. We have a lot of aging satellites that will need to be replaced in the next few years, and he wants a share of those launch dollars. The DOD is not historically very welcoming to newcomers.

SpaceX just revealed their passenger capsule, the Dragon 2. This is an upgrade on the Dragon 1 which has already been used three times to deliver supplies to the space station. The Dragon 2 can carry seven astronauts. It has landing rockets that allow it to land anywhere on earth with the precision of a helicopter. Last month SpaceX announced their new rocket, the Falcon Heavy. Falcon Heavy is the world’s most powerful rocket, able to lift into orbit over 53 metric tons (117,000 lb) -- a mass equivalent to a 737 jetliner loaded with passengers, crew, luggage and fuel. Falcon Heavy can lift more than twice the payload of the space shuttle or the next closest operational vehicle, the Delta IV Heavy, at one-third the cost. Alternatively the Falcon Heavy can lift 21 metric tons to geosynchronous orbit or 13 metric tons to Mars. Only the Saturn V rocket used to send men to the moon had a higher payload at 120 tons to Earth orbit.

China plans to force 55 million older cars off the road to try to control air pollution. Cars represent about 30% of China's air pollution problem; the rest mostly comes from coal fired electricity plants and factories.

Bidding has started for the 2022 Olympics. No one wants it. You build an entire village, it's full of people for about two weeks, then you never use it again. Sarajevo, Athens, and soon enough Sochi are all expensive monuments to this folly. It appears this cannot be sold in a democracy, so future Olympics might be held in non-democratic countries - you know, like Russia, Kazakhstan, China, and the US.

The EU has ruled that Google must have a page which allows individuals to request their personal information be wiped from Google's database, allowing a certain modicum of privacy, at least from everyone but the NSA. Google responded that this new law will aid dictators, using some logic that I found convoluted at best. Perhaps they're worried that N.Korea's dictator Kim Jong-un will have his information taken down, which as near as I can tell consists of his name, picture, and speculation about his actual age, height, weight and wife(s).

A team of scientists led by Edward Trybala from the University of Gothenburg in Sweden, and Volker Thiel from the University of Bern have discovered a compound called K22, which appears to block the ability of the corona virus to spread in humans. This virus causes about a third of all common colds and also SARS and MERS, two strains which are anti-biotic resistant and killing a lot of people in hospitals.

Obesity: Roughly a third of Americans are now obese, defined as a BMI of over 30. The worst part of this statistic is that US children have an obesity rate over 25% - as they get older that number will only increase. Some other countries are worse: in Colombia, Costa Rica and Mexico, the obesity rate is 57% for men and 65% for women. There are now over 2 billion obese people world wide, considerably more than the number living in hunger. What's causing the obesity? "Did all of a sudden the entire world just become a bunch of gluttons and sloths? All at the same time? I mean, get real." - Dr. Robert H. Lustig. On a simple mechanical level, the answer couldn't be easier. People are taking in more calories than they burn. Super sized portions are a big mechanical part of this. Why do people eat to the point of damaging their own health? That's not clear, but I think it's clear that refined sugars, especially high fructose corn syrup, are a big part. Sugars damage the hormone systems that control hunger and they damage your liver which keeps fat under control. And, imho, the single worst offenders are sugared drinks. Want to lose weight? We don't actually know much about how to do that. Here's some things that don't work: 1) exercise. There are lots of overweight people who are exercise fiends. 2) dieting. It's been known for twenty years that all the weight you lose from dieting goes right back on in the next year or two. 3) low fat foods. Most of the interesting tastes and smells in food are fat soluble compounds, so low fat foods are almost invariably loaded up on sugar and salt so that they don't taste like cardboard. In fact many point out that the obesity epidemic started right when the government erroneously identified fat as a heart disease risk and started the low-fat craze. Weight Watchers just got called out for their foods being higher in calories than many supermarket alternatives thanks to added sugar.

US Births are in an interesting long-term trend. Teenagers are having fewer births every year - a few more years and the teen age birth rate in this country will be no higher than the birth rate for women in their 40s. Women in their early 20s are also having fewer births every year as they spend their time getting educated or establishing themselves in a career. The only group that has a rising birth rate is women in their 30s.

Looking for a personal jet? Honda is nearing release of their first jet, a six seater that flies 420 knots at 30,000 feet with a range of 1200 nautical miles and a ceiling of 43,000 feet - numbers that rival much larger commercial jets. It's tiny - the interior is 4.8" high, 5" wide, 17" long and carries a maximum of 7 people. The over-the-wing engine configuration promises a much quieter ride than other small jets. About $4.5 million from your local dealer. Better get two, your wife will most likely want her own.

Randal Olson, a graduate student at Michigan State, put together some interesting statistics. In WWII Germany lost 9 million men, roughly 10% of their population. Those Germans killed 26m Russians, 6m Poles, 2m in Belarus, and another 2m allies, a total of 46 million. Japan lost 3 million men, about 4% of their population, and they killed 20m Chinese and another million or so in Korea and SE Asia.

I tried to take another motorcycle ride hitting perhaps six states, but failed. The rain map below from May 27th is God's way of saying "Mark, go home." I did manage to add on two more states in my abbreviated ride, bringing my new bike's totals to 24 states and 8,300 miles - not so bad for six weeks, I think. I doubt I can manage all 48 in one year, but I'll try. With Obama's help I might be able to visit all 57 states.

Retraction: a friend sent me a link from a spoof site claiming that muslims wanted to get rid of women. I was taken in and put it in my blog. Sorry. The statement that 2/3 of Pakistani marriages are between 1st cousins leading to birth defects and low IQs was mine, and is accurate. The picture of pre-teen girls led in chains to meet their new husbands was also accurate.

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